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Is Weyco Group, Inc. (NASDAQ:WEYS) Creating Value For Shareholders?

·4 min read

Today we'll look at Weyco Group, Inc. (NASDAQ:WEYS) and reflect on its potential as an investment. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.

Firstly, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. And finally, we'll look at how its current liabilities are impacting its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. All else being equal, a better business will have a higher ROCE. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

How Do You Calculate Return On Capital Employed?

Analysts use this formula to calculate return on capital employed:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

Or for Weyco Group:

0.093 = US$23m ÷ (US$269m - US$20m) (Based on the trailing twelve months to March 2020.)

So, Weyco Group has an ROCE of 9.3%.

Check out our latest analysis for Weyco Group

Does Weyco Group Have A Good ROCE?

ROCE can be useful when making comparisons, such as between similar companies. Using our data, Weyco Group's ROCE appears to be around the 12% average of the Retail Distributors industry. Separate from how Weyco Group stacks up against its industry, its ROCE in absolute terms is mediocre; relative to the returns on government bonds. Investors may wish to consider higher-performing investments.

You can see in the image below how Weyco Group's ROCE compares to its industry. Click to see more on past growth.

NasdaqGS:WEYS Past Revenue and Net Income May 15th 2020
NasdaqGS:WEYS Past Revenue and Net Income May 15th 2020

When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. You can check if Weyco Group has cyclical profits by looking at this free graph of past earnings, revenue and cash flow.

How Weyco Group's Current Liabilities Impact Its ROCE

Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counter this, investors can check if a company has high current liabilities relative to total assets.

Weyco Group has total assets of US$269m and current liabilities of US$20m. As a result, its current liabilities are equal to approximately 7.6% of its total assets. Weyco Group reports few current liabilities, which have a negligible impact on its unremarkable ROCE.

What We Can Learn From Weyco Group's ROCE

If performance improves, then Weyco Group may be an OK investment, especially at the right valuation. Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.